Retirement Protection and Market Risk
As retirement approaches, balancing risk and protection becomes more important than ever. Even the best-laid plans can be disrupted by unexpected market downturns. The closer you are to retirement, the less time you have to recover from losses—and that’s why managing market risk is a vital part of your retirement strategy.
Market risk—the risk that your investments will decline in value due to market cycles—can have a bigger impact as you enter the so-called “retirement red zone,” or the final 10 years before you retire. A significant loss during this period can change the outlook for your retirement income, sometimes permanently.
For much of your career, your investment approach may have focused on growth. But as you near retirement, your priorities shift toward protecting what you’ve earned and ensuring reliable income for the years ahead.
Summary: Approaches to Protect Against Market Risk
| Strategy | Main Benefit | Potential Drawback | Works Well For |
|---|---|---|---|
| Diversifying Income Sources | Reduces risk exposure by not relying on one asset or income stream | Does not guarantee protection from major market downturns | Those seeking balance and flexibility |
| Holding More Cash or Short-Term Assets | Liquidity and safety in the short term | Limited long-term growth | Pre-retirees wanting immediate access to funds |
| Fixed Index Annuities | Principal protection and guaranteed income, regardless of market performance | Reduced liquidity, may limit upside compared to direct stock investments | Those who want income certainty and less exposure to market loss |
| Traditional Fixed Annuities | Guaranteed rate and principal protection | Limited potential for growth above fixed rate | Very risk-averse savers |
| Staying Fully Invested in the Market | Potential for long-term growth | Higher risk of losses during market downturns | Those with a long time horizon and high risk tolerance |
How Do Things Change?
Retirement is a transition from building assets to using them. When you stop earning a paycheck, you’ll rely on your accumulated savings and income streams from your retirement plan. With a shorter window to recover from market drops, preserving your savings becomes more critical than ever.
During earlier market downturns, you may have had years—or even decades—to ride out losses and rebuild. But as retirement nears, that time cushion gets smaller. Every dollar lost today can reduce your future retirement income.
Making Every Retirement Dollar Count
Large losses, especially close to retirement or in early retirement, can have lasting effects on your ability to generate income. Withdrawing funds for income while your savings are down compounds the impact of those losses—potentially jeopardizing your financial security for years to come.
As Warren Buffett famously said: Rule #1 is “never lose money.” Rule #2? “Never forget rule #1.”
How Can the Timing of Market Risk Affect You?
The order in which you experience gains and losses—known as sequence of returns risk—is especially important as you approach and enter retirement. A major loss early in retirement can reduce the income your savings can produce for the rest of your life.
Sequence of returns risk means that losses near or just after retirement can have a much larger impact than losses earlier in your working years. Protecting a portion of your savings from market volatility during this period can help keep your income plan on track.
The table below shows just how much of a gain is needed to recover from different levels of loss. The larger the loss, the harder it is to get back to your starting point.
| Percentage Loss | Percentage Gain Needed to Recover |
|---|---|
| 10% | 11% |
| 20% | 25% |
| 30% | 43% |
| 40% | 67% |
| 50% | 100% |
Losses like these aren’t hypothetical—they’ve happened during major bear markets throughout history. That’s why planning for market risk is so important as you prepare for retirement.
- Myth: “Market risk can always be managed with diversification alone.”
- Fact: Diversification may help reduce risk, but only insured solutions such as fixed index annuities can provide principal protection and a guaranteed stream of income for life—regardless of how the market performs.
- Myth: “You have plenty of time to recover losses, even close to retirement.”
- Fact: Losses near or in early retirement can dramatically reduce future income. Planning ahead with strategies that include protection and guarantees can help keep your retirement on track.
What Can You Do Now to Plan Ahead?
Here are some steps you can take to protect your retirement as you get closer to your goal:
1. Look at Your Current Picture
Review your overall retirement savings and income sources. Are you still prioritizing investment growth, or have you started shifting your focus toward protecting assets you can’t afford to lose? Knowing how much income you’ll need in retirement can help clarify the right steps for your situation.
2. Evaluate Your Risk
Does the level of risk in your retirement plan match your comfort level and practical ability to withstand losses? As people near retirement, both their risk tolerance (how much risk feels comfortable) and risk capacity (how much risk they can afford to take) may change. Consider how a downturn would affect your financial goals and your ability to recover.
3. Explore Strategies for Protection
What steps can you take to help protect more of your savings as you approach retirement? One option to consider is using insured solutions like fixed index annuities to help shield part of your retirement assets from market downturns. Learn about the different types of annuities that can play a role in your strategy.
Fixed index annuities can provide principal protection, growth potential, and guaranteed lifetime income—features that may complement other strategies in your retirement plan. Explore how guaranteed income riders work to provide steady income, or see how an immediate annuity can deliver income you can’t outlive.
Want more on retirement protection? Read our guide on protecting your money from market loss.
Foxcove Financial can help you evaluate if adding a fixed index annuity could support your goal of balancing growth and protection as you near retirement.
4. Plan with Foxcove Financial
Creating a balanced retirement strategy takes more than just shifting investments. Foxcove Financial can help you weigh your options for protection and future income—all within the scope of insured retirement solutions. Our approach focuses on your goals, comfort with risk, and the insured income options available to you.
While it may not be wise to move all of your money out of growth-focused assets, reviewing the proportion of your retirement plan allocated to protection and guarantees is a valuable step. Diversifying your retirement income sources and strategies can help safeguard your plan from future market shocks.
Who Should Consider Market Risk Protection?
- Anyone within 10 years of retirement (“the retirement red zone”)
- Retirees who want predictable income and principal protection
- Those who worry about market downturns impacting their lifestyle
- Individuals seeking to balance growth and security in their retirement strategy
Quick-Glance: Are You Prepared for Market Risk?
- Reviewed your retirement income sources and needs?
- Considered how much risk is comfortable and appropriate?
- Explored insured income solutions, like fixed index annuities, for principal protection?
- Explored the types of annuities available for retirement income?
- Reviewed guaranteed income riders and immediate annuity options?
- Created a plan to manage market downturns?
- Scheduled a conversation with Foxcove Financial for a retirement strategy review?
Frequently Asked Questions: Market Risk & Retirement Protection
- What is “sequence of returns risk”?
This is the risk that losses early in retirement (or just before) can have a larger impact than losses later on, because withdrawals compound the effect of those losses. It’s one reason to consider protection strategies as you approach retirement. - Can I eliminate market risk completely?
No strategy can remove all risk, but you can reduce your exposure by including insured solutions such as fixed index annuities, and by balancing growth and protection across your income sources. - Do fixed index annuities participate directly in the stock market?
No—fixed index annuities are not invested directly in the market. Instead, interest is credited based on the performance of a chosen index, but your principal is never at risk from market loss. - How do I know if a fixed index annuity is right for me?
This depends on your income needs, goals, and comfort with risk. Schedule a call with Foxcove Financial for a personalized review. - Where can I learn about different types of annuities?
See our guide to annuity types and our resources on guaranteed income riders, immediate annuity solutions, and protecting your money from market risk.
Looking for Help with Your Retirement?
Market risk is just one of the many factors to consider as you prepare for retirement. After years of hard work, you want to protect what you’ve built and create lasting financial security. Foxcove Financial can help you review your progress, evaluate your income plan, and explore insured solutions to help balance market risk and protection.
Looking for Guidance?
If you’re ready to take the next step in planning your retirement with confidence, Foxcove Financial is here to help. We’ll walk you through your options, answer your questions, and help you evaluate solutions that align with your long-term goals. We specialize in insured strategies designed to protect and grow your retirement income. Call us at 609.807.8502 or schedule an appointment.